Weekly Healthcare Note: Abbott Labs And Intuitive Surgical

The past week has been eventful for the healthcare sector. During the week, Abbott Labs (NYSE: ABT) got conflicting responses relating to the pending approval of MitraClip. While the FDA staff recommended against approving the device seeking more data, an advisory panel to the FDA voted in favor of the device saying benefits outweigh risks. [1]

Meanwhile, Intuitive Surgical (NYSE:ISRG) announced an increase in its stock buyback program by an additional $1 billion amidst a steep decline in its stock price. [2]

Abbott’s MitraClip is used in patients with mitral regurgitation (one of the most common heart valve conditions), which is estimated to affect almost 1 in 10 individuals aged 75 and older. The device improves the heart’s efficiency to pump blood. W

hile MitraClip is already available in various markets following European CE Mark approval in 2008, it is still an investigational device in the major U.S. market pending FDA approval. On Monday, the FDA staff made negative comments about MitraClip seeking more data to show the device’s safety and effectiveness. However, on Wednesday, an eight members advisory panel voted unanimously to recommend the device’s safety. But, efficacy for its intended use remained under questioned with a 4-4 vote. [1] Overall, the panel voted 5-3 saying that the device’s benefits outweighed its risks. [1] The FDA usually follows advisory panel’s recommendation in issuing approval.

While we expect the device to get the approval, it will mostly be limited for the patients who are at high-risk for surgery. Recently, the device showed a huge 96% implant success rate in patients at high-risk to be treated with surgery. The device also exhibited a few adverse effects along with a lower-than-expected mortality rate.

The diversified health maker has been facing near term headwinds in its vascular division due to weakness in the U.S. drug-eluting stent market and growing competition. Approval for new products like MitraClip will lend support to its vascular franchise. However, if the FDA decides to pay heed to its staff recommendation and wait for data from another study (expected by 2019), Abbott’s market share may remain under pressure.

Intuitive Surgical has increased its stock buyback program by $1 billion taking the total amount for stock buyback to $1.21 billion. [2] The move comes with an aim to win back investors’ confidence as concerns are rising about the safety and cost effectiveness of its robotic surgery system called da Vinci. In the last couple of days, Intuitive Surgical’s stock has been hit by a wave of selling due to various reports. First, a new comprehensive study by Columbia University suggested that surgery through the system costs significantly higher than the standard minimally invasive procedure, and that too without any major benefits.

Further, the da Vinci system has seen a significant increase in adverse event reports including many incidences of deaths and injuries. The news that the FDA is asking surgeons at major hospitals to list complications witnessed with the surgical system, triggered selling in the stock as investors feared potential backlash from the FDA. Adding to the selling pressure was also an adverse comment from the American Congress of Obstetricians and Gynecologists, stating that robotic surgery for hysterectomies doesn’t improve outcomes and it should not be the first choice of procedure. A group of surgeons, however, rebutted the comment in a public letter released during last weekend. We recently discussed impact of these events in a note Downside Risks To Intuitive Surgical’s $600 Fair Value.

The medical device maker should be comfortable in funding its $1.2 billion stock buy-back program considering nearly $3 billion in cash and cash equivalents it has been sitting on. The buyback is expected to begin on April 23 after Intuitive Surgical reports Q1 results. [2]

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